New Venture Lab: Equipping Christian Entrepreneurs

Question

Do you recommend that I have an annual plan or budget for my business?

Answer

Value is only created when you grow your company, so staying the same size and at the same level of earnings may pay your bills, but it does not grow the value of your company.  One of the surest ways to keep your focus on growth is to keep a growth-oriented plan in front of you that provides some level of accountability for you and your company. 

 

Therefore, I do highly recommend a budget or a plan.   If you don't budget, how do you know what you're trying to achieve?  It's like setting sail without having a destination.  In the consulting world, there is a well-worn expression "what gets measured gets managed."   In other words, if you don't measure what you're doing, how can you possibly manage what you're doing?  So you do want to have a budget and a plan.

 

I would recommend that you start planning at the annual level and then add any seasonality that your business experiences and finally create a monthly budget of revenues, expenses and earnings that you hope to achieve.  I would also recommend that you keep it very simple at the beginning and only add complexity and sophistication as you discover the key drivers of your business.

 

The best plans are plans that can be easily boiled down to action items such as this example:

• Overall plan: $1.2 million in Revenue and $240,000 in Net Income
• Monthly sales goals to meet plan:
  • 100 customers per month at $1,000 each are required to meet the plan
  • The company's sales team experiences a 25% win rate; therefore 400 prospects must be engaged each month in order to close 100 customers
  • That translates into 100 proposals per week, which in turn translates into 20 proposals every day
  • The sales pipeline process takes two months from the initial engagement with the prospect to the final closing of the deal, therefore, we must begin engaging 20 prospects per day on November 1st in order to starting selling at the rate of 100 customers per month for the month of January

This simple example provides very clear and actionable goals for the sales department in terms of the pace at which they need to be working every single day.  It also gives you as the entrepreneur a very clear way of gauging their success versus the goals.  If by the end of December, the proposal rate is only 5 per day, you will know with a high degree of certainty that you will not make your plan in January or February and you can start to make the operational decisions necessary to pare back the company's capacity based upon the early indicators of your sales pipeline -- all made possible by a clear plan.